Reg AT is aimed at reducing market disruptions from automated trading. The best example is probably the May 6, 2010 “Flash Crash” when automated trading caused the S&P 500, Dow Jones and Nasdaq to crash and rebound almost 10% in 36 minutes (...tame compared to crypto, I know).

If implemented, Reg AT could require pre-trad risk controls by:

Anyone trading with AT systems;

Certain futures commission merchants (aka, a futures broker); and

“Designated contract markets” (“DCMs”) that execute the orders of anyone trading with AT systems.

The rule would also impose registration requirements on traders that electronically submit orders directly to a DCM, without routing them through a member of a derivatives (aka, futures) clearing organization.

In legal context, "chilling" refers to the fact that too much regulation may slow or kill the development of innovation. E.g., regulation of crowdfunding is considered to have been implemented too quickly, stagnating the development of crowdfunding.

Given Chairman Giancarlo’s favorable treatment of crypto, it’s not surprising he’s hesitant to clamp down before the CFTC has more time to watch the development of relatively new technology develop.

Automated trading is valuable in and of itself, but all the algorithms, code and lessons learned in its development could transfer to other fields. It’s possible that a trading algorithm can pick up certain patterns that may surface in diseases, for example.

Going Forward

In early 2017, the CFTC extended the time period in which it was accepting comments on the proposed Reg AT to May 1, 2017. That day has come to pass, and no public developments have happened with Reg AT.

Given that the Trump administration is keen on less regulation, and Chairman Giancarlo’s is hesitant to regulate new tech too quickly, we may not see any form of the proposed Reg AT implemented at all.

It’s safe to say automated trading isn’t going anywhere. Eventually, regulations will need to be imposed to protect against flash crashes and fraud. But it doesn’t look like that will be happening any time soon.

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